Monday, May 30, 2011

Last week business leaders from Malaysia, Indonesia, Singapore, Thailand and the Philippines announced the formation of an ASEAN Business Club (ABC). The initial members include the bosses of CIMB Bank, Air Asia, Bangkok Bank, Ayala and other business luminaries. According to the CIMB press release, the ABC is a “fully private sector driven initiative for ASEAN’s major home grown corporations to come together and fully engage in ASEAN’s community building efforts.”

At first glance, the ABC would appear to duplicate an existing ASEAN initiative called the ASEAN Business Advisory Council (ABAC). ABAC was established by ASEAN leaders to provide feedback from the business community on ASEAN matters. Each ASEAN member selects three business leaders to represent the country at ABAC.

Although both ABAC and the ABC will provide feedback from the business community, it looks like they will have different, perhaps complimentary roles. ABAC functions as an umbrella business group for ASEAN, with its main event hosting the annual ABAC business meeting held on the sidelines of the ASEAN summit. The leadership of ABAC shifts every year, like that of ASEAN itself. All of these factors result in ABAC acting more as a business networking organization, with intra-business ties just as important as government-industry relations.

From reading the press release and news reports, it appears that the ABC will be something different. Being a purely private sector initiative, funded by local ASEAN companies, I think the ABC will have more of an advocacy role. ABC will have continuing institutional support from the CIMB ASEAN Research Institute, meaning that the ABC should be able to provide input on ASEAN matters on a persistent and consistent basis. The ABC thus goes beyond the role of ABAC (caused by the structural limitations described above) and is a positive step reflecting a greater maturity in the ASEAN business community with regard to government relations.

The ABC and ABAC can thus provide dual and mutually supportive roles for the ASEAN business community in dealing with AEC issues. For example, the U.S. has both the US-ASEAN Business Council (USABC) to advocate American business interests in ASEAN and the Asia-Pacific Council of American Chambers of Commerce (APCAC) to coordinate business activities in ASEAN and elsewhere in Asia. There is no reason why the ABC and ABAC cannot do the same. For years both the USABC and APCAC have wanted to deal with an ASEAN counterpart. It looks like that is going to happen.

Thursday, May 26, 2011

Previously I wrote that the release of Aung San Suu Kyi and the institution of a purportedly elected government in Myanmar warranted a revisit of Burma sanctions imposed by the West. After its policy review, the EU did slightly modify its Burma sanctions, lifting the visa ban and asset freeze on certain civilian members of the Myanmar regime, and allowing high-level visits to Myanmar to resume (and it appears that the EU had allowed such visits even before the revision in its Burma policy). The United States, on the other hand, decided to maintain its Burma sanctions without revision.

In effect, the EU and the U.S. appear to be using a “good cop, bad cop” approach. The EU has made small adjustments to its Burma sanctions, which is in line with Suu Kyi’s call to maintain sanctions but in a manner that considers the negative effects on the Burmese people (although the adjustments perhaps are only the first steps in that direction). The U.S., on the other hand, appears to be taking a harder line than the EU.

Yet this is to be expected. The EU always had more flexibility built into its Burma sanctions and elected to exercise that flexibility. The U.S.-imposed Burma sanctions were legislatively imposed by Congress, with much less flexibility afforded to the Obama administration.

In any event, it is still early going for the new regime in Myanmar, and much too early to “reward” the regime’s behavior. The U.S. is continuing its dialogue with the Myanmar regime but without greater and deeper reforms, it will be difficult for the Obama administration to modify its Burma sanctions. The EU, with its greater flexibility, can serve as the initial interlocutor with the Myanmar regime. The EU apparently has decided to consider opinions from within and without Myanmar other than Suu Kyu’s party, and religious issues are not as important, as they would be to the U.S.

Hence the cumulative effect of this year’s EU and U.S. policy is an incremental, tentative approach towards the Myanmar regime. This properly recognizes that the formerly rigid policy did not work. Nevertheless, the Myanmar regime needs to reciprocate with concrete steps to improve the situation in the country and in the lives of its people. There have been a few small steps here and there, but nothing worth rewarding with more sweeping changes to the Burma sanctions. In short, it takes two to tango, and the Myanmar regime needs to show that it is willing to dance, not just change out of its uniform into party attire.

Monday, May 23, 2011

The Indonesian and Malaysian defense ministers have proposed creation of the ASEAN Defense Industry Collaboration (ADIC) program to achieve economies of scale and eliminate redundancies in defense procurement in ASEAN. This is a worthwhile goal, but just like other ASEAN projects, ADIC will face major external and internal obstacles.

Indonesian Defense Minister Purnomo Yusgiantoro noted that ASEAN spends about US$ 25 billion annually but remains a net importer of weapons. This, despite the fact that Thailand, Malaysia, Indonesia and Singapore have major defense industries, and in complimentary sectors. Malaysian Defense Minister Datuk Seri Dr. Zahid Hamidi urged for a common ASEAN standard for defense procurement similar to what NATO uses.

The private sector would welcome a common ASEAN standard in the defense industry and has already pursued harmonization in other industries as well. A major aspect of the AEC is the implementation of common ASEAN standards for industries such as pharmaceuticals.

Yet factors that have delayed common ASEAN standards in non-defense industries could affect defense procurement as well. Vested interests at the national level will be reluctant to support harmonization. This happens everywhere in every industry. The Boeing-Airbus airborne tanker saga is but one example and shows that even within NATO the clash of national and economic interests is not easy to manage. In sectors such as automobiles and agriculture, ASEAN has experienced difficulty in managing economic integration due to strong domestic interests.

Defense has additional national security implications beyond normal economic considerations. NATO has achieved harmonization of standards, and some intra-NATO cooperation in projects such as the Typhoon fighter, because of the decades-long external threat of the USSR. Despite the reduced threat in Europe, cooperation continues because of budget limitations. Will ASEAN be able to achieve defense cooperation without explicitly articulating the justification for such cooperation (e.g., China) and without the economic limitations faced by NATO?

In short, ADIC is a worthwhile idea that illustrates how developing the ASEAN Political-Security Community and the ASEAN Economic Community can benefit ASEAN through reduced costs and improved capacities. However, the NATO experience indicates that this could be difficult without the strong external and internal factors that motivated defense cooperation in Europe. Overcoming those difficulties will require major political commitment and follow-through by ASEAN’s leaders.

Wednesday, May 18, 2011

At this month’s ASEAN Summit, ASEAN chair Indonesia pushed for admitting Timor Leste into the regional grouping. According to Timor Leste President Jose Ramos-Horta, Malaysia, Thailand, Cambodia, Brunei, the Philippines and Myanmar/Burma also support the tiny country’s bid. Singapore reportedly blocked the move, claiming that Timor Leste is not ready to join ASEAN. Perhaps this is correct, but ASEAN is also not ready to have Timor Leste enter the association.

Article 6 of the ASEAN Charter sets forth four criteria for admission, including location in Southeast Asia, recognition by other ASEAN members, agreement to be bound and abide by the Charter, and ability and willingness to carry out the obligations of membership. A consensus of the ASEAN members is required to admit a new member; hence Singapore’s objection could postpone a Timor Leste application indefinitely.

Reportedly, Singapore objected because of its concerns that adding Timor Leste would complicate plans to complete the ASEAN Economic Community (AEC) by 2015. As a newly independent country heavily dependent on foreign aid, the ability of Timor Leste to comply with the requirements of AEC is questionable. For example, Timor Leste is not a member of the WTO, yet many AEC agreements are based on WTO principles and agreements. Without better human and legal infrastructure in Timor Leste, it will be difficult for the country to implement AEC obligations.

However, the same could be said about most of the existing ASEAN members. Implementation of the AEC is still a work in progress, and some ASEAN government ministries frequently work at cross-purposes, frustrating the ASEAN institutions and ministries more committed to the AEC. In short, if Timor Leste is not ready to join ASEAN, it could also be said that ASEAN is not ready to have Timor Leste join. Singapore’s objection may appear coldly rational, but rational it is.

Nevertheless, it is important to have Timor Leste eventually join ASEAN. Geographically and culturally, the country is in Southeast Asia, and it has a vast potential in natural resources such as natural gas. Its strategic position between Indonesia and Australia cannot be overlooked. Although some question its political stability, citing the attempted coup in 2008, Thailand had a successful coup in 2006 (and later return to democracy) and no one questions its suitability to remain in ASEAN. In any event, ASEAN membership would promote political stability in Timor Leste. Thus, Indonesia was justified in supporting Timor Leste’s bid, and even more so, given the moral obligation stemming from its role as the occupying power in the country.

So if Singapore is correct that the time is not right for Timor Leste to join, and Indonesia and others are correct that ASEAN needs Timor Leste and vice versa, what can be done?

First, ASEAN needs to complete the implementation of the AEC by 2015. Not only will this require major progress over the next 3-4 years, but it will also require ASEAN to establish legally binding and comprehensive commitments that can be easily adopted by Timor Leste when it does join. In other words, ASEAN needs to develop and complete its own version of the EU’s “acquis communautaire,” or body of law. Otherwise, Timor Leste (or the existing ASEAN members for that matter) will not be able to administer the AEC properly.

Second, ASEAN needs to consider the potential institutional effects of having Timor Leste in the grouping and whether corrective measures should be taken. For example, each ASEAN member makes an equal contribution to the budget of the ASEAN Secretariat, resulting in a very small overall operating budget. Pegging the contribution to the ability of Timor Leste to pay will further hamper the ASEAN Secretariat’s ability to function. Thus, the accession of Timor Leste should be an occasion to revisit the funding formula for the ASEAN Secretariat and other ASEAN institutions.

Third, Timor Leste needs to complete the basic preparation to join the world economy and by extension, the AEC. It needs to join the WTO. It needs the continued support from the global community to develop the “software” needed to interact with the rest of ASEAN.

These steps, as well as a longer period of accession beyond 2015, are necessary because ASEAN needs more time to settle down its own economic integration before taking on a new member. Furthermore, the experience in regional groupings like the EU and ASEAN itself demonstrate that the greatest incentive for new applicants to reform and conform is membership itself. Once the applicant joins, the moment is lost. For example, after Cyprus joined the EU, settlement of the island’s political partition became indefinitely stalled. Would ASEAN have greater impact on Myanmar/Burma if that country were outside of ASEAN?

All of the above will be frustrating to Timor Leste’s leaders and worldwide supporters, who wish to follow up on the goodwill of Indonesia during its term as ASEAN chair and join ASEAN this year. However, the factors in favor of admitting Timor Leste into ASEAN will only become stronger over time. Furthermore, ASEAN itself is trying to evolve into an economic community, not just a political grouping. Thus, both Timor Leste and ASEAN will benefit from having a longer time horizon for ASEAN membership.

ASEAN finance ministers, along with finance ministers from China, Japan and Korea, have been reviewing an internal study on adopting a common currency. Although it is always good to conduct long-term analyses, moving too fast on a common currency would be detrimental to the AEC.

In short, ASEAN (with or without the “3”) needs to walk before it can run. The EU experience with the Euro shows that too much divergence in fiscal policies within a monetary union can be hazardous to financial health. The EU has been dealing with these problems even though they have a unified market for goods and services, which the AEC will only begin to have in a basic form by 2015, and even though they have supra-national institutions such as the European Central Bank, which ASEAN members do not want to encourage. Attempting monetary coordination without strong supra-national institutions would risk replicating the mistakes made by the defunct European Monetary System. As complicated as these issues are within ASEAN itself, they multiply many-fold when the “plus 3” are added to the equation.

ASEAN or Asian monetary union thus should be seen as a very long-term goal, and perhaps viewed more as a proxy for discussions on further use of the Chinese yuan as a major trade currency. Whether or not that will happen will depend on Chinese policymakers, but the broader economic forces are there. In the meantime, ASEAN needs to focus on the 2015 AEC at hand before moving on to currency union.

Monday, May 16, 2011

Last Friday, Amcham Singapore members (including yours truly, who serves as Amcham Singapore treasurer) met the first resident U.S. Ambassador to ASEAN, David Carden. His appointment was a long time coming and the Obama administration should be credited for taking this important step. Senator Richard Lugar (R-IN), who had been advocating the creation of this position for years, deserves the most credit for being farsighted. The United States and Japan are currently the only countries with resident ASEAN ambassadors devoted to the regional grouping.

Ambassador Carden appears affable and ready to work. Most importantly, he is an experienced litigation lawyer from New York. ASEAN is not without disputes, even though the ASEAN dispute settlement institutions are underused, and his friendly advice should help ASEAN develop the rules-based system that the AEC needs.

Thursday, May 12, 2011

Of the three pillars of ASEAN, the most obscure pillar would be the ASEAN Socio-Cultural Community. Besides a shared diet of rice, there would not appear to be many common cultural bases for ASEAN members, given the diverse cultural and religious influences throughout the region. The ASEAN Political-Security and Economic Communities have much more visible and tangible presences.

Although comparisons between the EU and ASEAN are always fraught with difficulties, even in socio-cultural community building it would appear that ASEAN is less developed than the EU. “Ode to Joy” is well-known as the anthem of the EU, but very few even know of the existence of the ASEAN anthem “the ASEAN Way. “ There is no ASEAN equivalent of the Eurovision song contest, nor an ASEAN television channel (although MTV and Disney can make credible claims to this title).

The announcement of ASEAN’s joint bid for the 2030 World Cup of football (soccer) represents a major step in developing the ASEAN Socio-Cultural Community. Nothing crosses cultural divides more than football (yes, as an American I do find this game of “anticipation” rather frustrating to watch, but I cannot discount its global importance). A joint bid will excite football fans in the region and give substance to the ASEAN Socio-Cultural Community.

Since the World Cup involves a lot of money, the bid will also necessarily involve the AEC. The bidding process will require coordination and expenditure, and if the bid is successful, there will be issues related to licensing, construction, scheduling and endorsements. The ASEAN Football Federation (AFF) can take care of most of these issues, but without an equivalent entity in the public sector to coordinate matters with FIFA and the AFF, an ASEAN World Cup could be an expensive mess.

I therefore hope that the ASEAN member states can see fit to designate the ASEAN Secretary-General (or one of his deputies) to serve as the standing coordinator and represent the member states in coordinating with the AFF and negotiating with FIFA. I know that this will require some relaxation of sovereignty concerns, but without a unified structure, the bid could fall victim to the same management-by-committee issues that have caused the EU-ASEAN free trade agreement talks to stall.

Besides, if this model works for the World Cup, it could work for other joint ASEAN projects on the world stage. After all, if Brazil can host both the World Cup and the Olympics in a short period of time, why not ASEAN?

Wednesday, May 11, 2011

Other than Indonesia's efforts to mediate the Thai-Cambodian dispute over the Preah Vihear area, the other major issue at this weekend's ASEAN Summit was the request of Myanmar (aka Burma) to assume the chair of ASEAN in 2014. Issues regarding human rights and governance in the country aside, Myanmar's inexperience with operating an open economy and dealing with issues of regional integration would mean that its taking on the ASEAN chair would be a major setback for the AEC.

Under the formal and informal rules of ASEAN, Myanmar does have some basis for making this claim. In 2006, Myanmar was due to become ASEAN chair as the position is rotated based on the alphabetical order of the English names of the member states. The regime, under pressure, agreed to defer its turn to an indefinite date. The Myanmar regime could have invoked this decision to justify taking the next available slot, e.g., the 2012 slot due to be taken by Cambodia. Although this might be beneficial for the Preah Vihear dispute (imagine Cambodia as ASEAN chair if the dispute continues into 2012!) it would be disruptive as Cambodia is experienced from its WTO accession and benefitted from trade policy capacity building assistance provided by the United States and others. Myanmar, with the restrictions imposed by Burma sanctions from the West, does not have such experience or support.

Rather, Myanmar proposed swapping the 2014 slot due to be taken by Laos, with Laos moving to the 2016 slot currently scheduled for Myanmar, after Malaysia. Although there is also precedent for this move, as Brunei and Indonesia swapped slots, having Myanmar as ASEAN chair in the run-up to 2015 would seriously hurt AEC implementation by 2015. Laos may be as economically underdeveloped as Myanmar, but the government has greater experience in opening up their economy and like Cambodia has received substantial assistance in developing their trade and investment policy skills. For example, Laos recently opened its first stock exchange.

At some point, ASEAN will have to deal with having Myanmar as ASEAN chair. In five years' time, perhaps both the regime and the Burma policy of the West will sufficiently change to make a Myanmar chairmanship acceptable. Those issues aside, ASEAN cannot afford to have Myanmar in charge of the final steps of the AEC development in 2014. ASEAN should thus keep to the current schedule and let Cambodia, Brunei and Laos take over as ASEAN chair in due course.

About Me

I am an American international trade lawyer and partner in the trade boutique firm Appleton Luff. I also teach the first course on the law and policy of the ASEAN Economic Community, at National University of Singapore law school and have served as an adviser to the ASEAN Secretariat and various ASEAN government ministries.

My Upcoming ASEAN Events

US-Malaysia-ASEAN Outlooks on Malaysia as ASEAN Chair and Realization of the ASEAN Economic Community and Regional Comprehensive Economic Partnership in 2015, American University ASEAN Studies Center, Washington, Dec. 1, 2014